The 375-bed Heritage Quarters student housing complex in downtown Waco is dealing with a $2 million dispute with its general contractor and a foreclosure threat from its lender, but its developer has told city leaders not to worry.

SWB Heritage Square Partners opened the six-story complex last summer across Washington Avenue from the Waco Convention Center, on land leased from the city at a nominal rate.

Students enter the Heritage Quarters apartment complex on Washington Avenue Monday.
Duane A. Laverty / Tribune-Herald

SWB Partners is a major property owner in downtown Waco, and city officials consider Heritage Quarters a major catalyst for downtown redevelopment.

The interim lender, Sterling Bank of Houston, posted a notice of foreclosure sale with the county clerk Aug. 17, setting the sale for Sept. 7.

According to county records, Sterling lent SWB Partners $18 million in May 2008, an amount due in April 2010.

SWB partner David Wallace of Sugar Land did not return calls seeking comment. Sterling Bank officials would not discuss details of the case but noted that they have not yet foreclosed on the property.

City Manager Larry Groth said he has been discussing the matter with Wallace, most recently Monday.

“David said they’re still in negotiation, and he feels very confident they’ll get it resolved,” Groth said.

Groth said Wallace assured him the student housing complex is financially healthy and is near complete occupancy.

He said SWB had problems getting long-term financing to replace Sterling’s interim financing. The problem appears to stem from a dispute between SWB Partners and the project’s general contractor, E.E. Reed Construction of Sugar Land.

E.E. Reed filed labor and material liens in May against SWB Partners for $2 million the contractor said it was owed. E.E. Reed officials did not return calls Monday seeking comment.

Several subcontractors also filed smaller liens against SWB Partners.

Groth said his understanding is that SWB Partners was partially withholding payment to the general contractor because of some work the developer considered unfinished.

Groth said Heritage Square’s struggles are unfortunate, but he thinks the project itself is successful and remains a boon to downtown development.

“We’ve got new buildings and tax base,” he said.

The city retains ownership of the land Heritage Quarters is built on, and if the property were to change hands the new owners would be subject to the same lease and conditions as SWB, Groth said.

SWB Partners has a related development agreement with the city to develop the two blocks in front of City Hall, and Groth said he expects those projects to continue moving forward. So far, the south block has been developed with condos, a boutique inn and a restaurant-bar, called Sam’s on the Square.

SWB Partners also is the owner of RiverSquare Center on Franklin Avenue, home of some of Waco’s best-known restaurants and shops. The partnership is a major source of funding for the Downtown DASH, a shuttle that runs between downtown and Baylor University.

jbsmith@wacotrib.com

757-5752

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